* Japan intervenes in currency market, spurs dollar rally * Physical gold buyers on sidelines * Spot gold upside capped in $1,762-$1,773 range-technicals * Coming up: U.S. Chicago PMI, October; 1345 GMT (Adds comment, details; updates prices) By Rujun Shen SINGAPORE, Oct 31 (Reuters) - Spot gold prices dropped nearly 2 percent on Monday, after Japan's intervention in the currency market triggered a spike in the dollar, spooking precious metals investors and setting bullion up for its biggest one-day drop in four weeks. Japan intervened unilaterally in the foreign exchange market on Monday to curb the yen's strength, sending the dollar up more than 1 percent against a basket of currencies. A stronger greenback makes dollar-denominated commodities more expensive for buyers holding other currencies. "The huge spike in the dollar is pressuring gold prices," said Ong Yi Ling, an analyst at Phillip Futures. "But so long as gold stays above $1,700, the sentiment should remain pretty bullish." The most-active U.S. gold futures contract GCcv1 dropped as much as 2.3 percent to $1,707.7 an ounce, and recovered slightly to $1,711.10 by 0622 GMT. It was headed for a monthly rise of 5.4 percent. Spot gold fell nearly 2 percent to $1,705.89 earlier and regained some lost ground to $1,709.29. It was on course for its biggest one-day drop in four weeks, but was still headed for a monthly rise of more than 5 percent. Technical analysis suggested the upside of spot gold will be capped in a resistance range of $1,762-$1,773 per ounce, said Reuters market analyst Wang Tao. Buyers in the physical market were on the sidelines, which led to gold bar premiums easing to a range between $1 to $1.50 an ounce over spot prices, from about $1.50 last week. "We saw some light buying from Thailand," said a Singapore-based dealer. "If prices drop below $1,700 physical buyers are expected to return." Investment interest in gold was rekindled in recent weeks after euro zone leaders progressed towards an agreement to solve the bloc's debt crisis, albeit painstakingly, sending prices up 6 percent last week. Last week, money managers raised their bullish bets in gold futures and options to the highest in four weeks, data from the U.S. Commodity Futures Trading Commission data showed. SPDR Gold Trust , the world's largest gold-backed exchange-traded fund, registered an inflow of 16.04 tonnes on the week and 11.62 tonnes from the end of September, after a small outflow of 0.38 tonnes in September. Other precious metals weakened in tandem. Spot silver dropped as much as 3.2 percent to $34.12, and the most-active U.S. silver futures contract SIcv1 lost 2.8 percent to $34.30. Spot platinum suffered its worst one-day loss in a month with a 3-percent slide. Spot palladium fell 3.3 percent to $642.22. In the days ahead, investors will be watching a policy meeting of the U.S. Federal Reserve, as well as a key Group of 20 meeting for coordinated efforts or pledges to help stabilise world financial markets. Precious metals prices 0622 GMT Metal Last Change Pct chg YTD pct chg Volume Spot Gold 1709.29 -30.15 -1.73 20.42 Spot Silver 34.27 -0.96 -2.72 11.05 Spot Platinum 1590.74 -52.70 -3.21 -10.00 Spot Palladium 642.22 -21.78 -3.28 -19.67 TOCOM Gold 4369.00 124.00 +2.92 17.16 107173 TOCOM Platinum 4089.00 55.00 +1.36 -12.93 27392 TOCOM Silver 86.70 1.10 +1.29 7.04 1534 TOCOM Palladium 1655.00 13.00 +0.79 -21.08 644 COMEX GOLD DEC1 1711.10 -36.10 -2.07 20.38 37266 COMEX SILVER DEC1 34.30 -0.99 -2.80 10.86 5802 Euro/Dollar 1.3985 Dollar/Yen 79.43 TOCOM prices in yen per gram. Spot prices in $ per ounce. COMEX gold and silver contracts show the most active months (Editing by Himani Sarkar)

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